The Single Greatest Risk to Our Economy?

The 2012 election was about the economy. Much was said about the government’s role in supporting the context for job creation via tax, debt and trade policies. Most of the focus however, was on the role of large companies–whether they will ship jobs overseas or keep them here. Even less attention was paid to small business, and none at all was given to a threat that has less to do with government and more to do with entrepreneurial initiative. We think this was a mistake.

We frequently hear that small business is the engine for job creation and economic growth, and the data supports that proposition. According to the Bureau of Labor Statistics, the data shows that there are 30 million small businesses in the US, collectively accounting for over $10 trillion in personal wealth. These small businesses employ 53% of all US workers, and are responsible for creating 64% of all net new jobs [70% of all jobs created in the last decade]. This sector offers a huge opportunity for the market-led economic recovery we need, but it is threatened: not by trade or tax policy (though getting these factors right is important for the sector to thrive), but by the very entrepreneurs who created all this wealth, all these jobs, all this economic growth and innovation. And unless they get this right, the loss of wealth and economic vitality that took place as a result of the 2008-09 “recession” could pale in comparison. We’re talking trillions of dollars of squandered wealth.

Here’s what we mean. Sixty percent of small business owners were born before 1964–they are part of the Baby Boomer Generation. So–get ready for this–a Baby Boomer small business owner is turning 65 every 57 seconds, and that will continue for the next 17 years.

That is a startling number. Every 57 seconds another small business owner gets ready to retire, or at least scale back on their involvement in business. You’d like to think that, similar to large, Fortune 1000-type companies, these business owners are thinking ahead, making plans for the continuation of their businesses, with someone else at the helm after they exit. Old age will inevitably mean that even the most hearty of us start to slow, and health issues will take their toll as we age. Though many of us are motivated to keep earning to support adult children and even grandchildren–we only last so long. Yet, even though 95% of small business owners acknowledge the importance of exit and succession planning, only one in eight have a written plan for leadership continuity; and without such plans the odds that the business will disappear along with the current owner are far too high.

What accounts for this failure to protect and secure what it took a lifetime to build? How is it that the men and women who took risks, learned hard lessons, and displayed ingenuity and tenacity their entire lives, act like fearful procrastinators when it comes to managing the business risk of retirement and succession? Have they all gone mad?

We don’t think a bout of mass hysteria is a plausible explanation.

Many business owners simply refuse to quit, and this takes many forms. Some would like to quit but don’t trust anyone to do the job well after them. Some are tangled up by unrealistic expectations from family and business partners. Others wonder how they will be treated once they retire, and what they will do with themselves. Many simply don’t see how they can attract a buyer or arrange a buyout or realize other acceptable transitions.

It all stems from one thing: they don’t act because they don’t really know what they want to do next, so rather than tackle it like any other challenge in their business, they let it slide because business is business, but this… this is personal. Besides, there are always issues more urgent in a thriving business, (though none more important). But successful transition of a business across many generations is possible. The owners of the Montreal Canadiens NHL Team are the Molson family; they are on the 12th generation of Molsons and have been central to Montreal’s economy for two centuries.

Figuring out what to do is difficult because no cookie cutter solution speaks adequately to the intricacies of each business and each ownership situation. The owners’ usual advisors tend to see things as accountants, as lawyers, as financial planners, etc. They often don’t see the whole picture or will discount aspects for which they don’t have a ready solution.

We encourage Baby Boomer business owners to wake up to the reality of their situation, and face up to the challenge. There is too much at risk to simply do nothing and hope for the best. If you own a business, start planning for the “life-after-exit” you want to lead, making sure that your business, with all that it creates for your family, employees and the economy, survives for generations to come.